A panelist on the Center for Strategic and International Studies' (CSIS) “Assessing the Economic and Financial Dynamics of a Cross-Strait Crisis” panel said chip supply-chain disruptions in the Taiwan Strait would have bad to catastrophic outcomes.
Panelists in the March 29 discussion were Anna Ashton, Director for China Corporate Affairs and US-China at the Eurasia Group; John Fagan, Principal and Co-Founder at Markets Policy Partners; and Emily Kilcrease, Senior Fellow and Director of the Energy, Economics, and Security Program at the Center for a New American Security.
Jude Blanchette, CSIS Freeman Chair in China Studies, and Gerard DiPippo, CSIS Senior Fellow with the Economics Program, co-moderated the panel, which explored how scenarios involving Taiwan could impact trade, global supply chains and investments.
"I think to set the table here," Kilcrease said in her opening remarks, "it's important to realize that when we talk about disruption to supply chains in this general region, we're not talking about any good option - we're talking about bad, worse and catastrophic outcomes."
“It’s not just a question of the world's reliance on Taiwan for chips," DiPippo said during the discussion. "It’s Taiwan making the chips which then largely go to China which then go to the rest of the world."
Taiwan produces more than 90% of the world’s cutting-edge chips used in phones and other electronics, Kilcrease said. Any disruption in shipping out those chips could have a significant impact beyond the chip sector, according to Kilcrease.
“Ultimately, they're going into your computer, going into your electronics, or going into your coffeemaker,” Kilcrease said.
Ashton said the spillover effects of the supply chain disruptions are unlimited.
But in short- to medium-term planning, uncertainty about China’s regulatory and political directions and export controls are the problems multinational corporations (MNC) should consider, DiPippo said. Tech-regulation concerns in China might result in reduced exposure to that sector.
A consequence of Russia’s invasion of Ukraine and the COVID pandemic is that companies realize they must account for major geopolitical factors, Ashton said.
A potential meeting of Taiwan President Tsai Ing-wen with U.S. House Speaker Kevin McCarthy (R-Calif.) in California had Fagan examining how markets reacted to former Speaker Nancy Pelosi’s (D-Calif.) Taiwan visit last summer.
“It was essentially the equities coming under pressure, feeling some sense of relief when the worst-case scenarios or serious rupture in the diplomatic relationship didn’t materialize,” he said.
Export controls and entity list designations were used on companies when a Chinese balloon flew over the United States, which has been the U.S. response, Kilcrease said. Financial sanctions haven’t been imposed at scale.
“Once we start going up to that part of an escalation ladder, the consequences to the global economy and the backlash to the U.S. economy could be severe,” she said.
Potential action could be removing one or two banks' access to the New York Fed and foreign exchange operations, she said.
The U.S. signaled support for Taiwan with up to $10 billion in military aid to the nation in the annual defense spending bill. Defense News reported Taiwan will receive $2 billion in loans annually through fiscal year 2027.
President Joe Biden signed the bill in December. Taiwan’s Foreign Ministry thanked Congress “for showing the great importance it attaches to Taiwan-U.S. relations and strengthening Taiwan’s security,” AP News reported. China’s Foreign Ministry said that the bill “severely affects peace and stability.”
